Thursday, September 27, 2007

Dallas vs. Houston GDP confusion

So, after seeing the Chronicle article this morning ranking Houston #7 nationally in metro GDP (behind NYC, LA, Chicago, DC, DFW, and Philly - and SF would be ahead of us if San Jose and Silicon Valley weren't carved off into it's own metro), I was a bit confused when this thread caught my eye on the HAIF forums quoting a Dallas Morning News article saying that Houston is actually #5 nationally, ahead of both Philly and DFW. So Houston says Dallas wins, and Dallas says Houston wins. Very strange indeed.

After doing a little digging at the Dept. of Commerce Bureau of Economic Analysis web site press release, I think I figured out what happened. If you look at the tables in their main pdf report, which covers 2001 through 2005, they use "millions of chained 2001 dollars" so the numbers are comparable and inflation adjusted. That yields the Chronicle numbers, with Dallas at $285 billion and Houston at $256 billion (unfortunately, the Chronicle table is mislabeled as "billions of dollars 2005"). But if you dig into their interactive tables, you can choose "millions of current dollars" instead, and then you get the DMN numbers with Houston at $316 billion and Dallas at $315 billion. I understand why the numbers change with the inflation adjustments, but don't understand why the rankings change, which is beyond my understanding of how the math works here. If you understand how it happened, a (simple) explanation would be appreciated in the comments.

But, at the end of the day, in current dollars, Houston is #5 in the country and ahead of Dallas. On the other hand, in this case, one might argue that the Dallas paper is ahead of Houston's...

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At 5:38 PM, September 27, 2007, Anonymous Anonymous said...

The reason the relative rankings change is that these constant vs. current dollars are based on metro inflation rates, not national ones. Since inflation is lower in Houston than in Dallas, Houston comes out better. Hope that makes sense.

At 6:15 PM, September 27, 2007, Anonymous Anonymous said...

Interesting. I wonder how they measure metro inflation rates. They seem to be pretty different. For Dallas it seems reasonable, 1%-4% in a given year. For Houston, it looks weird, -1%-10%. Looking at Austin, it's 1%-2%. The total "deflators" from 2005 to 2001 for those cities are 11%, 24%, and 6% respectively. The little help bubbles on the BEA site don't shed much light into how the calculation is supposed to work.

Maybe the difference is related to oil prices. But if rig and service prices go up because everyone is scrambling for $80 oil, is that "inflation" or an actual increase in value?

You should email and and see if they know!


At 6:33 PM, September 27, 2007, Blogger Tory Gattis said...

Here's a quote from the report:

"GDP by metropolitan area is the sub-state counterpart of the Nation’s GDP, the Bureau’s
featured and most comprehensive measure of U.S. economic activity. GDP by metropolitan area
is derived as the sum of the GDP originating in all the industries in the metropolitan area. Real
GDP by metropolitan area is an inflation-adjusted measure based on national prices for the goods
and services produced within that metropolitan area. The estimates of real GDP by metropolitan
area and of quantity indexes with a base year of 2001 were derived by applying national implicit
price deflators to the current-dollar GDP-by-metropolitan-area estimates for the 61 detailed
NAICS-based industries. Then, the chain-type index formula that is used in the national accounts
is used to calculate the estimates of total real GDP by metropolitan area and of real GDP by
metropolitan area at more aggregated industry levels."

At 10:40 AM, September 28, 2007, Anonymous Anonymous said...

Very cool numbers. I had always thought that the Nielsen "media market" DMA's were the best way to measure the "size" of metro areas. The GDP numbers add another level of sophistication.

Wow. The combined Bay Area jumps to third place in the rankings. I suspect that the DC region's number is understated thanks to its sprawl. The DC metro television/job market stretches from WVa in the West, to Fredericksburg, VA in the South, and the Maryland 'burbs in the North. Atlants looks a little understated too.

At 1:17 PM, September 28, 2007, Blogger Tory Gattis said...

Actually, the combined Bay Area doesn't quite pass Chicago at third, $391B vs. $461B for Chicago, so they would be fourth.

DMA's definitely diverge from Census metros, because a media market is typically much larger geographically than a unified metro job market (which is what the Census uses).


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